Transocean Ltd: Complete Fleet Analysis As Of August 2014, And Recent Second Quarter Results

Aug.18.14 | About: Transocean Ltd. (RIG)

Summary

Transocean Ltd released its second-quarter results on August 5th. The company beat the street expectation with an impressive net revenue of $587 million and earnings of 1.61/sh.

The company is performing well, despite many headwinds due to a general and persistent softness of the floaters and jackups market.

As a long investor, it is crucial to look over these unavoidable economic cycles and seize the opportunity to accumulate when the value is definitely present.

Source: Deepwater Nautilus, RIG website.

Transocean Ltd. (NYSE:RIG), is one of the top-tier offshore drilling companies, which owns a very large fleet of floaters and jackups.

The company owns a total of 27 high specification floaters: Ultra-deepwater rigs; 12 high specification floaters: Deepwater rigs; 7 high specification floaters: Harsh environment; 21 Mid-water floaters; finally, 11 high specification jackups. It is a total of 77 active rig units. Furthermore, 14 more rigs are under construction, at the moment, and scheduled to be coming on-line as early as mid-2014. (7 are already contracted.)

Complete fleet status as of August, 2014.

Link: July fleet status.

1 - Rigs under construction.

# RIG K feet Contract Start Contract End

Dayrate

K $

Location
Ultra-deepwater Drillships
1 DeepWater Asgard 12/40 Starting operation now per the CC Q3/14-Q2/17 600 TBA
2 DeepWater Invictus 12/40 Q2/14 Q3/14-Q2/17 595 US GOM Billiton
3 DeepWater Thalassa 12/40 Q1/16 Q1/16-Q4/25 519 TBA Shell
4 DeepWater Proteus 12/40 Q2/16 Q2/16-Q2/26 519 TBA Shell
5 DeepWater Pontus 12/40 Q1/17 Q1/17-Q4/26 519 TBA Shell
6 DeepWater Poseidon 12/40 Q2/17 Q2/17-Q2/27 519 TBA Shell
7 DeepWater Conqueror 12/40 Q4/16 Q4/16-Q4/21 599 US GOM Chevron
8 JSPL Ultra-deep TBN 1 12/40 TBA Available - -
9 JSPL Ultra-deep TBN 2 12/40 TBA Available - -
High specification Jackups
1 KFELS High Sp Jackup TBN 1 400/35 TBA Available -
2 KFELS High Sp Jackup TBN 2 400/35 TBA Available -
3 KFELS High Sp Jackup TBN 3 400/35 TBA Available -
4 KFELS High Sp Jackup TBN 4 400/35 TBA Available -
5 KFELS High Sp Jackup TBN 5 400/35 TBA Available -
Click to enlarge

2 - High specification floaters: Ultra Deepwater.

High Specification Floater

Ultra Deepwater Rigs

7,500'/12,000'-30,000'/40,000'

Year built Ship or Semi

Contract

End

Current

Dayrate

K $

Location
1 Discoverer Americas 2009 Ship 3/16 735 Other sub-saharian
2 Discoverer Champion 2011 Ship 11/15 677 US GOM
3 Discoverer Clear Leader 2009 Ship 9/14-9/18 571/590 US GOM
4 Discoverer Inspiration 2010 Ship 3/15-4/20 527/585 US GOM
5 Dhirubhai DW KG1 2009 Ship En-route to Brazil until Q2/16 with Petrobas 440 India and Middle East (-> Brazil)
6 Dhirubhai DW KG2 2010 Ship 2/15 510 India and Middle East
7 Discoverer India 2010 Ship 9/16-11/20 528-508 US GOM
8 Petrobras 10000 2009 Ship 8/19 435 South America
9 Discoverer Deep Seas 2001 Ship 11/16 595 US GOM
10 Discoverer Enterprise 1999 Ship 10/14 615 US GOM
11 Discoverer Spirit 2000 Ship 6/14 557

US GOM

12 GSF C.R Luigs 2000 Ship 6/14 580 US GOM
13 GSF Jack Ryan 2000 Ship 7/14 445 North Africa and Mediterranean
14 Deepwater Discovery 2000 Ship 7/14 461 Nigeria
15 Deepwater Frontier 1999 Ship 8/14 565 Australia
16 Deepwater Millenium 1999 Ship 4/15-4/16 600-611 Australia
17 Deepwater Pathfinder 1998 Ship 4/15 680 US GOM
18 Deepwater Expedition 1999 Ship 11/14 650 India and Middle East
19 Cajun Express 2001 Semi 11/14-11/15 600-495 North Africa and Mediterranean
20 Deepwater Nautilus 2000 Semi 8/17 533 US GOM
21 GSF Explorer 72/98 Ship 7/14 412 US GOM
22 Discoverer Luanda 2010 Ship 1/18 470 Angola and Namibia
23 GSF Development Driller I 2005 Semi - Idle US GOM
24 GSF Development Driller II 2005 Semi 4/14 606 North Africa and Mediterranean
25 Development Driller III 2009 Semi 11/16 428 US GOM
26 Sedco Energy 2001 Semi Rig swap with GSF Rig 135-9/15 New 365 Other sub-saharan
27 Sedco Express 2001 Semi 4/14-10/14 600/455 Nigeria
Click to enlarge

3 - High specification floaters: Deepwater.

High Specification floater: DeepWater (12)

4,500-7,200'/25,000'

Year built Ship or Semi

Contract

End

Current

Dayrate

K $

Location
1 Deepwater Navigator 2000 Ship 2/16 374 South America
2 Discoverer Seven Seas 1997 Ship 7/14-9/14 500-400 South Asia
3 Transocean Marianas 1998 Semi 3/15 370

Other sub-saharan

4 Sedco 706 2008 Semi 5/14 361 South America
5 Sedco 702 2007 Semi 2/16 461 Nigeria
6 Sedco 707 1997 Semi 11/14 394 South America
7 GSF Celtic Sea 1998 Semi 9/14 328 Angola and Namibia
8 Jack Bates 1997 Semi 5/14 380 Australia
9 M.G Hulme Jr 1996 Semi - Idle India and Middle East
10 Sedco 710 2001 Semi - Stacked North Africa and Mediterranean
11 Transocean Rather 1988 Semi - Stacked South Asia
12 Sovereign Explorer 1984 Semi - Stacked India and Middle East
Click to enlarge

4 - High specification semi-submersible: Harsh environment.

High Specification floater: Harsh environment (7)

1,500'-10,000'/25,000'-30,000'

Year built Ship or Semi

Contract

End

Current

Dayrate

K $

Location
1 Transocean Barents 2009 Semi 8/14-8/15 587 Norway
2 Transocean Spitsbergen 2010 Semi 7/15 547 Norway
3 Henry Goodrich 2007 Semi 6/15 346-476 Canada
4 Transocean Leader 1997 Semi 3/15 410 Norway
5 Paul B. Loyd,JR 1990 Semi 3/15 441-447 UK
6 Transocean Arctic 1986 Semi 1/16 415-519 Norway
7 Polar Pioneer 1985 Semi 6/17 620-589 Norway
Click to enlarge

5 - Midwater floaters.

Midwater floater: (21)

1,000'-3,600'/25,000'

Year built Ship or Semi

Contract

End

Current

Dayrate

K $

Location
1 Sedco 700 1997 Semi - Stacked South Asia
2 Transocean Legend 1983 Semi 4/14-11/14 293-425 Australia
3 Transocean Amirante 1997 Semi - Idle North Africa and Mediterranean
4 GSF Arctic I 1996 Semi - Stacked North Africa and Mediterranean
5 Transocean Driller 1991 Semi 7/16 264 South America
6 GSF Rig 135 1983 Semi (Rig swap with Sedco Energy) N/A Other sub-saharan
7 GSF Rig 140 1983 Semi 9/14-Stacked 260 India and Middle East
8 GSF Aleutian Key 2001 Semi - Stacked Other sub-saharan
9 Sedco 711 (1) 1982 Semi 6/14-10/15 350-366 UK
10 Transocean John Shaw (1) 1982 Semi 12/14-12/15 361-416 UK
11 GSF Arctic III (1) 1984 Semi 4/14-9/14 336-411 UK
12 Sedco 712 (1) 1983 Semi 4/14-10/16 380-409 UK
13 Sedco 714 (1) 1997 Semi 3/14-2/16 400-445 UK
14 GSF Grand Banks 1984 Semi 9/15 409 Canada
15 Actinia 1982 Semi 7/15 190 India and Middle East
16 Sedco 601 1983 Semi - Stacked South Asia
17 Transocean Winner 1983 Semi 7/15-7/16 458-499 Norway
18 Transocean Searcher 1988 Semi 5/15 396 Norway
19 Transocean Prospect (1) 1992 Semi 5/14-5/15 425-376 UK
20 J W. McLean (1) 1996 Semi - Stacked UK
21 Sedco 704 (1) 1993 Semi 2/16 374 UK
Click to enlarge

(1) Caledonia Offshore Company spin-off (8 rigs.)

The offshore drilling assets currently contemplated for transfer to Caledonia include the following rigs: Sedco 704, Sedco 711, Sedco 712, Sedco 714, Transocean John Shaw, Transocean Prospect, GSF Arctic III and J.W. McLean.

Regarding Caledonia Offshore Drilling, the UK North Sea focused drilling company announced during the quarter, we have no additional updates at this time. We expect to establish this new entity during the second half of 2014 and at an appropriate time separate it fully from Transocean. We have maintained full flexibility to pursue all options, including the potential direct sale to public or private buyer, a spin or a public offering. (Said Isa Ikaheimonen at the last CC.)

6 - High specification Jackups.

High Specification Jackup: (11)

350'/400'-30,000'/35,000'

Year built

Contract

End

Current

Dayrate

K $

Location
1 GFS Constellation I 2003 1/16 150 South Asia
2 GFS Constellation II 2004 7/15 165 Other sub-saharan
3 GFS Galaxy I 2001 10/14-4/17 216 UK
4 GFS Galaxy II 1998 6/14-1/15 192-221 UK
5 GFS Galaxy III 1999 5/14-7/17 226-180 UK
6

Transocean Honor

2012 4/15 153 Angola and Namibia
7 GSF Magellan X X X X
8 GSF Monarch 1986 9/14-3/15 167-169 UK
9 Transocean Andaman 2013 5/16 145 South Asia
10 Transocean Siam Driller 2013 3/18 139 South Asia
11 Transocean Ao Thai 2013 9/18 135 South Asia
Click to enlarge

Fleet analysis snapshot.

1- Rig Fleet per category:

Total UDW

Deepwater

semi-subs

HE Deepwater Semi-subs. Midwaters Jackups
Number of Rigs 77 27 12 7 21 10
New rigs 14 2 7 - -

5

Click to enlarge

2- Rig Fleet per region:

Total

Angola

Australia Canada India and Middle East (Brazil) Nigeria North Africa and Medit. Norway

Other Sub/

saharan

South America South Asia

US

GOM

UK
UDWs 27 1 2 0 3 2 3 0 2 1 0 13 0
Deepwaters 12 1 1 0 2 1 1 0 1 3 2 0 0
Semi-subs 7 0 0 1 0 0 0 5 0 0 0 0 1
Midwaters 21 0 1 1 2 0 2 2 2 1 2 0 8
Jackups 10 1 0 0 0 0 0 0 1 0 4 0 4
Total 76 3 4 2 7 3 6 7 6 5 8 13 13
Idle 4 0 0 0 1 0 1 0 1 0 0 1 0
Stacked 8 0 0 0 1 0 2 0 1 0 3 0 1
Click to enlarge

* GSF Rig 135 has been swapped with Sedco Energy (indicated at the conference call.) Now, GSF Rig 135 is classified here as idle until contracted again soon; however, it appears that this new contract is a done deal ready to be announced quickly per Terry Bono, SVP marketing:

In addition we recently executed a rig swap agreement between the Sedco Energy and GSF Rig 135. We should be announcing more positive news on the 135 shortly.

3 - Rig dayrate range:

Terry Bono, SVP marketing gave a general dayrate per category and per location at the conference call;

But we had previously reported and certainly in our last presentations on the road, I think the ultra-deepwater ranges reported were 375 to 500, deepwater was around mid-300s to 400s, mid-water was I think around mid-300s to 400s in the harsh environment and below 200 outside of U.K.

Second-quarter 2014 results snapshot.

Link: Conference call transcript on August 7, 2014.

Link: Pr second-quarter 2014 results, on August 6, 2014.

Q2 2014 Q1 2014
Revenue in $ Million 2,328 2,339
Net Income in $ Million 587 456
Operating and maintenance expenses in $ million 1,213 1,269
Fleet revenue efficiency in % 95 95.7
Earnings per share in $ 1.61 1.25
Interest expense in $ million 112 126
G & A in $ Million 63 57
Shares Outstanding basic in Million 262 262
Backlog as of August 2014 in $ Billion (Versus April 17, 2014) (2) 27.08 26.11
Cash and Cash equivalent in $ Million 2,117 1,987
Long-term Debt $ Billion (1) 10.46
Stock price August 14, 2014 in $ 38.88
Enterprise Value $ Billion 22.32
EBITDA $ Billion 3.90
EV/EBITDA 5.72
Click to enlarge

(1), Regarding the balance sheet, we continue to work towards reducing our gross long-term debt to below $9 billion.

(2) Terry Bono, SVP Marketing, said at the CC: "We increased our contract backlog by 75% over the first quarter, demonstrating the Company's solid position in this very challenging market."

Note: The ratio EV/EBITDA is very low, which means that RIG has a good and manageable debt level which will allow for newer rig purchase down the road to renew its aging fleet. Seadrill Ltd. (NYSE:SDRL) which has one of the most modern fleets has an EV/EBITDA reaching 11 right now.

YTD chart:

RIG Chart

RIG data by YCharts

Commentary:

Transocean Ltd. Is one of the biggest and the oldest top-tier offshore drilling companies, with probably around $9.5 billion in total revenue for 2014.

The company continues to deliver outstanding positive results, quarter after quarter, whereas the analyst community exaggerated bearishness, keeps on beating up the Industry with negative and sometimes blatantly incorrect financial assumptions, in my opinion. The recent example of this dismissive and unwarranted action against the Offshore drilling industry, is the last sector brutal downgrade issued by Deutsche Bank analyst, Mike Urban.

My ultimate goal is not to discuss in-depth the validity of this downgrade which is totally unjustified, but preferably, give the reader enough compelling data to make a personal and honest assessment of the situation; and judge, first hand, what is pure fiction and what is reality?

At the last conference call, Terry Bono, SVP marketing, explained succinctly what sort of headwinds the Industry is actually facing. A definitive market softness is being experienced by all the players in the offshore drilling sector, and it is still difficult to indicate an end of this weak cycle. After analyzing many different companies, I believe the real turnaround will be Q3 2015.

Another important topic, which has been debated almost on a monthly basis, is the dividend level and its sustainability. Few analysts once more have suggested that the dividend will have to be reduced or even temporarily cancelled due to the continuing depressed market, and so far, after over a year, they are still wrong. Again, this topic came back at the conference call, and the question was asked by Angie Sedita, UBS, and was answered by Steven Newman, CEO:

But as both I and Esa commented in our remarks, we are committed to maintaining a competitive and sustainable dividend. So that's very important to management and the Board.

What we can say is that the dividend is pretty safe, and it would take some extraordinary circumstances to change this standard paradigm. It is contrasting again with the Deutsche Bank analyst, Mike Urban, who predicted a forced cut in dividend as one justification for his broad downgrade of the sector and for RIG, particularly.

Some specialists are asserting that RIG still has room for a dividend increase that I am not advocating at all at the moment.

RIG is trading now at a large discount level while reporting $2.33 billion in revenue and $1.61 per share whereas analysts' expectation was for $2.27 billion and $1.12 earnings per share. I believe the stock is trading at a discount to its true fair value which I estimate to be between $48 to $50, and despite the two or three coming quarters which are considered as tough, because of more idle time and mobilization time. I am expecting earnings of 0.81/0.85 per share for the next Q3 2014.

Finally, we will find out soon, what will be decided with Caledonia Offshore? If we look at what Noble (NYSE:NE) did with Paragon (PGN) recently, I would be interested to see Caledonia spun off and a special share dividend to be distributed to all RIG shareholders. I believe this situation may bring more value for investors, and the new company will be totally autonomous and will trade separately.

I am rating RIG as a BUY accumulates, especially when we look at the 7.5% dividend.

Disclosure: The author is long RIG, SDRL. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.